Here's Why PepsiCo China Workers Are Freaking Out After The Deal With Tingyi

The ink isn’t even dry yet on the press release, and already Pepsi’s workers in China are out there striking/protesting over possible staff changes:PepsiCo China staff are concerned the management may not fulfil its promise to keep the company system unchanged for two years and employees might be laid off in a covert way, after the beverage company’s tie up with Tingyi Holding Corp[.]

The reporting on this story so far has been rather confusing, and there seems to be some confusion about exactly what workers are concerned about. Some press accounts, like the one I quoted above, reference unspecified staff changes, noting that the workers have been promised that contract terms will not be changed for at least two years.

But some workers are complaining that they haven’t been given proper notification about relocation and other labour issues. They also seem to be worried not only about possible layoffs, but a forced changeover from employment with PepsiCo to Tingyi. The workers are specifically worried that: a) they will not be paid adequate severance after termination by PepsiCo, and b) their new deal with Tingyi will involve less favourable terms.

This reminds me of 2007, when many employers layed off staff just prior to the effective date of the labour Contract Law, knowing that tougher rules regarding severance pay were about to come into effect. The question here is what sort of information these workers have and whether their worries are well-founded.

A forced termination/new hire strategy as part of Tingyi’s acquisition isn’t unprecedented, but neither is it necessary. Tingyi could step into those ongoing contracts as the new owner. If the deal includes new labour contracts that are being forced onto workers, then I would say the fears may indeed be justified. Why else would Tingyi bother to renegotiate terms in the first place?

One thing to keep in mind. If there are mass layoffs by somewhere down the road, notification will be required to both staff and the labour Bureau and a layoff plan that includes details on severance payment must be put together. labour will have some opportunities (now and later) to publicize this and perhaps force the local labour authorities to step in and at least mediate.

So there are at least two major issues here:

First, compensation paid to workers by PepsiCo for layoffs. Severance pay is required, and although I understand the workers are worried about this, I’m not sure how PepsiCo could avoid presenting an adequate severance package. I’m not a labour law expert, but severance requirements are fairly straightforward.

Second, the termination-and-renegotiation with Tingyi. I’m wondering to what extent workers can push back on this sort of thing. These issues go beyond my knowledge of China’s labour law, but it seems that PepsiCo’s justification for termination would be iffy.

Questions for a PRC labour law expert:

1. Can a company justify mass layoffs because of an M&A deal? What’s the justification, some sort of change in circumstances? Doesn’t sound right to me.

2. If there isn’t adequate justification for termination, then wouldn’t the buyer (in this case Tingyi) be contractually obligated to uphold the terms of existing labour contracts at the time of the acquisition?

3. To what extent will the local labour authorities get involved? Will the protests make a difference?